ESG advances with US issuers
With investors increasingly demanding sustainability commitments, Greg Cass, Head of Sustainable Capital Markets, Americas, looks at the rapid growth of – and outlook for –sustainability-linked bonds.
Providing large corporate, government and institutional clients with a full spectrum of strategic advisory, financing and risk management solutions.
Explore Investment BankingWe serve our institutional investor clients by helping them to understand developments in global markets and offering execution and risk management tools across each major asset class.
Explore Global MarketsOur analysts strive to deliver differentiated market insight, actionable ideas and collaborative Research across asset classes.
Explore ResearchWe provide a spectrum of solutions to enable businesses to transact and trade easily, manage risks efficiently and finance plans for growth.
Explore Corporate BankingView thought-leading highlights by our market experts and analysts from across Barclays Corporate and Investment Bank.
Explore InsightsDive deeper into the topics and trends shaping economies and industries with timely analysis and insights.
Macro Shifts Innovation Edge Solving Sustainable Explore ThemesGet updates on what’s driving the latest changes in business and markets through our regularly recurring series.
The Flip Side 3 Point Perspective Impact Series Explore SeriesRead news and stories about our business, our people and our work in the community.
Explore News and EventsGo to Section
With heightened investor focus on sustainability and the challenge of delivering on Net Zero commitments, corporates are increasingly attracted to SLBs, which offer more flexibility relative to other green financing options.
SLB proceeds can be used for general corporate purposes, which makes them accessible for more carbon-intensive sectors, such as oil and gas, or for issuers with limited capital investment requirements in green assets. Additionally, an SLB’s financing terms are linked to measurable sustainability-related performance targets or outcomes, which investors are seeking. What’s more, SLBs are suitable for both investment grade and high-yield issuance.
As a result, companies have embraced SLBs leading to a sizeable uptick in issuance over the last two years. All global sustainability-themed bond supply from corporate issuers totalled $270 billion in 2021 – a growth rate of 170% compared to 2020. SLBs comprised just 6% of 2020’s issuance volume, but 26% of 2021’s (see figure below).
SLB issuance across sectors including manufacturing, infrastructure, pharma, telecoms and tech is driving this growth, with most structures utilising environmental key performance indicators.
However, some sectors – particularly those with socially-focussed missions – may be less inclined to utilise SLBs, given the lack of consistency on material key performance indicators and the difficulty of proving the ambition of targets. Yet work on both regulatory and voluntary metric frameworks could address those concerns, contributing to growth over time. For example, the EU’s Social Taxonomy, which aims to define sustainable social activities by introducing transparent sustainability metrics, could encourage further interest from corporates and issuers such as higher education and charities.
As more issuers enter the market, the ensuing ‘peer pressure’ effect should fuel further growth, as investors and issuers look to participate in a movement with a strong upward trajectory.
Regional markets are maturing at different rates when it comes to sustainability-linked issuance, with European companies leading in terms of green targets. However, US companies have identified a similar appetite and are closely monitoring Europe to see what lessons can be learnt from implementation there. A recent proposal from the SEC on climate disclosures could further boost US SLB issuance growth by requiring reporting of key environmental metrics and associated targets.
Despite broad interest in sustainable finance in APAC markets, SLBs currently make up less than 10% of cross-border sustainability-themed issuance from the region. However, new issuances from Latin America suggest that SLBs will see significant expansion in worldwide markets, with new waves of interest and products to follow.
With investors increasingly demanding sustainability commitments, Greg Cass, Head of Sustainable Capital Markets, Americas, looks at the rapid growth of – and outlook for –sustainability-linked bonds.
Sustainability-linked bonds offer issuers the chance to move beyond rhetoric and show investors how strong their organisational commitment to achieving net zero and other sustainability targets really is.
The flexible use of proceeds from SLBs could lead issuers to push the boundaries of how these funds help them achieve their goals. For example, companies may deploy the funds to develop new or enhance existing products, services or operations that drive towards more sustainable outcomes. Given the reporting requirements for SLBs, issuers will have to be transparent about progress towards their targets, providing greater insight into organisational strategies and results.
Successfully meeting an SLB’s performance targets could have positive financial and non-financial effects for the issuer well beyond the bond’s repayment term. However, falling short of those targets could have broader consequences. Either way, investors will have more insight into companies’ performance, which could influence equity or bond-holder behaviour in the future.
As SLBs gain traction, our Sustainable Capital Markets team look forward to working with clients to get the financing they need to achieve both organisational and sustainability goals.
About the experts
Greg Cass
Head of Sustainable Capital Markets, Americas
Atul Jhavar
Head of Sustainable Capital Markets, Asia-Pacific
Will Jones
Director, Green & Sustainable Capital Markets
Karan Shah
Managing Director, Head of Fixed Income Syndicate